You just received a letter or phone call from the Internal Revenue Service (IRS), and it indicates that the IRS is auditing your federal tax return. What do you do now? There are several steps you can take to address the situation:
- Remain Calm. Approximately 1-1.5% of United States taxpayers are audited each year. With over one million IRS tax audits each year, you are not alone. Why did the IRS audit you? There are a variety of reasons your federal tax return may have been flagged, but one of the most common reasons is a large number of deductions. Does this mean that you did anything wrong? No. In fact, everything on your return may be fine and the Internal Revenue Service simply needs more information to confirm they are valid.
- Plan to Respond. The IRS requires a reply to federal tax return audits within two months. Without you providing a response, the IRS will likely rule against you. Remember, the IRS generally considers that their position is correct unless you provide evidence proving otherwise. Such a ruling could mean that you have to pay more taxes. You may have to pay fines as well if you do not make the additional payment on time.
- Read the Notice. The notification you receive should clearly state why the IRS is auditing your federal tax return. It should also indicate how you should response (whether through the mail or in person at a local IRS office) and the date by which the response must be received by the IRS. Finally, if the IRS believes that you owe additional money on your federal tax return, the notification will state the amount.
- Obtain Professional Help. The tax laws can be complicated to understand. Therefore, without appropriate training or tax advice, it may be difficult to understand if the IRS’s position is correct and what rights you have as a taxpayer. This is where a tax lawyer or other professional who prepared your return can help. They have the knowledge to guide you through the situation.
- Write a Response. Whether you need to meet with an IRS representative in person or can provide our response in the mail, you should write up your response. This allows you to organize your thoughts and respond in professional manner. This written response should speak only to the concern noted in the IRS audit notification, as other facts may cloud the issue. You should also keep original copies of your tax return documents and support, supplying only copies along with your written response.
- Await the IRS’s Reply. Once you have responded to the IRS, they should contact you again, whether it is to indicate that your response has addressed the matter or that the matter is still in question. If the IRS does need additional information, perform the steps noted above in response to the IRS’s request.
If you find after you have consulted a tax advisor or tax lawyer that you do owe additional money to the IRS, you should investigate an Offer in Compromise (OIC). An OIC is a situation where the IRS accepts a lesser amount as payment for a tax liability in lieu of the full payment. The IRS may accept an OIC in three situations:
- Doubt to timely collection. The IRS does not believe you can pay the full amount owed within the legal period allowed for the IRS to collect the additional tax due.
- Doubt the taxpayer actually owes the money. There is question to the amount of money owed because of a mistake by the IRS auditor or because of new evidence provided by you or your tax advisor or tax lawyer.
- There is an unusual financial situation. The taxpayer is able to prove that payment of the tax would create an unfair economic burden.
Additional information about Offer in Compromise is available on the Internal Revenue Service’s website at http://www.irs.gov/businesses/small/article/0,,id=104593,00.html.
Do I need to hire a tax attorney?
If you have additional questions or need help from a tax attorney, complete the short evaluation form found at http://www.offerincompromiselawyer.com/Tax-Relief.php and a tax lawyer will review your situation free of charge. The review is 100% confidential and there is no obligation. Tax attorneys understand federal tax laws and can answer your IRS tax questions. You have everything to gain by obtaining professional advice! So get help in addressing your IRS audit today or establishing an Offer in Compromise!